Enbridge Companies
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Tax Information

Find current and historical tax information about Enbridge Income Fund Holdings Inc. (ENF)

Tax Information - Post - Restructuring

Until December 17, 2010, Enbridge Income Fund ("the Fund") was a "mutual fund trust" as defined in the Income Tax Act (Canada) (the " Tax Act"). Units in the Fund (Fund Units) were qualified investments for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans and registered education savings plans under the Tax Act, and were not "foreign property" within the meaning of the Tax Act.

Cash distributions to Fund unitholders ("Unitholders") comprised an income or taxable component and a return of capital component. The specific breakdown regarding distributions in a particular year was provided to Unitholders after the end of the calendar year.

The taxable component represented 80% of the 2010 Fund distributions, 82.66% of the 2009 distributions, 90.35% of the 2008 distributions, 80.88% of the 2007 distributions, 80.270% of the 2006 distributions, 89.869% of the 2005 distributions, 80.625% of the 2004 distributions, and 64.349% of the 2003 distributions.

Regarding the taxable component, it was mainly ordinary income for tax purposes although there may also have been a dividend component that qualified for the dividend tax credit when received by an individual resident in Canada. The portion of a distribution that was considered a return of capital was not immediately taxable but rather reduced the Unitholder's tax basis in the Fund Unit on which paid. This increased a capital gain/reduced a capital loss on any ultimate disposition of the Fund Unit. To the extent that the tax basis of a Fund Unit would otherwise be less than nil, the negative amount was deemed by the Tax Act to be a capital gain.

A Unitholder should have received a "T3 Supplementary" slip from either his/her broker. This slip indicated the taxable and return of capital components of the distributions. The Canada Revenue Agency (CRA) requires that T3 Supplementary slips be mailed out by March 31 of the year following the calendar year being reported on.

General Information about the Transaction

What transaction took place?

On December 17, 2010 (the "Effective Date"), a Plan of Arrangement ("Arrangement") was completed whereby Unitholders exchanged their Fund Units on a one-for-one basis (the "Exchange") for common shares of ENF. Shortly after this date, detailed information was sent to Unitholders to advise them of the Exchange and make them aware that the Exchange was a taxable transaction to be reported on their tax returns.

Why did the Arrangement take place?

The Arrangement took place primarily as a result of changes to Canadian federal income tax legislation relating to specified investment flow through trusts that were enacted into law (the "SIFT Rules") in June 2007. The SIFT Rules would have made the Fund subject to federal income tax beginning in 2011. Therefore, the Fund would not be able to continue to distribute pre-tax income out to Unitholders. The Arrangement provided an alternative vehicle for income from the Fund to be distributed on a more tax effective basis. Please refer to the Fund Information Circular dated March 31, 2010 available at www.sedar.com for further details.

Who was affected by the Arrangement?

The Arrangement affected any “unitholder of record” on the Effective Date. Generally, if you beneficially owned Fund Units at such time, you were affected.

Did the federal tax legislation amendments that provided for automatic tax-deferred conversions for holders of trust units to shares of corporations apply to the Arrangement?

Under the Arrangement, an automatic tax-deferred conversion was not applicable to the Arrangement or to the Exchange. However, certain eligible Unitholders may have been able to elect to defer all or a portion of the gain arising from the Exchange by filing an election form with the CRA. The election form had to be filed with the CRA in accordance with strict time limitations.

Canadian Income Tax Considerations

The following brief summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular unitholder. It is impractical to comment on all aspects of Canadian federal income tax laws which may be relevant to any particular Unitholder. The summary that follows applies to a Unitholder who is a resident of Canada ("Resident Holder") and holds Fund Units as capital property for purposes of the Income Tax Act (Canada) (the "Tax Act"). Where the units are held by Resident Holders who might not otherwise be considered to hold their Fund Units as capital property, they may, in certain circumstances, be entitled to have such Fund Units treated as capital property by making the irrevocable election pursuant to subsection 39(4) of the Tax Act. Unitholders contemplating making this election should consult with their own tax advisors. Unitholders who hold Fund Units on account of income are urged to consult their own tax advisors.

All Unitholders are advised to obtain independent advice from a tax advisor who is knowledgeable on the income tax consequences arising from the Exchange based on the Unitholder's own personal circumstances.

Unitholders are urged to consult their own tax advisors for the tax implications to them, particularly if they are not Resident Holders; are uncertain as to whether their holdings of Fund Units are in registered or unregistered accounts; or are uncertain as to whether their Fund Units are held on account of capital or income.

What was the impact of the Exchange on Fund Units held by a Resident Holder through a registered account?

Generally, there should have been no tax impact to a Resident Holder if his or her units were held in a tax-exempt registered account (a "registered account") such as an RRSP, RRIF, pension plan, etc.

What about Fund Units held by a Resident Holder that were not held in a registered account?

The exchange of Fund Units that were not held in registered accounts by a Resident Holder should generally have been treated as a taxable transaction to the unitholder and the following considerations applied:

Disposition of Fund Units

In the taxation year of the Unitholder that included the Effective Date (2010 for individuals), the Unitholder should have reported a disposition of the total number of Fund Units owned by the Unitholder (whether of record or beneficially) less the Fund Units held in registered accounts.

Where the Fund Units were held as capital property, the difference between the proceeds of disposition and the sum of (a) the adjusted cost base of all the Fund Units held in non-registered accounts and (b) any costs incurred by the Unitholder to effect the Exchange generally resulted in a capital gain or loss. It may have been possible for certain Unitholders to defer their capital gain.

Acquisition of ENF Common Shares

The cost to a Resident Holder of any ENF common shares received on the Exchange should be the fair market value ("FMV") of the Fund Units at the time of the Exchange unless the Unitholder filed a Tax Election.

FMV of the Exchanged Units

Since the Exchange occurred at the first moment of time on the Effective Date, the FMV of the Fund Units exchanged pursuant to the Arrangement were to be determined by reference to the closing trading price of the Fund Units on the TSX on the immediately preceding trading day or by reference to the weighted average trading price of the Fund Units based on a reasonable number of trading days preceding the Effective Date.

Proceeds of Disposition

The proceeds of disposition of the Fund Units was the FMV of the ENF common shares received in exchange for the Fund Units, determined in the manner described above.

Adjusted Cost Base Calculator (the "ACB")

Generally, where Fund Units were held on account of capital, the ACB of a Fund Unit was the purchase price of the Fund Unit less the non-taxable portion of distributions received while that Fund Unit was held. To the extent Fund Units were acquired and a portion, but not all, of the Fund Units were sold, the weighted average cost per Fund Unit must have been determined. The weighted average cost per Fund Unit multiplied by the number of Fund Units exchanged for ENF common shares was the total ACB of such Fund Units at the Effective Time.

It is the responsibility of each Unitholder to compute the ACB for their Fund Units held in non-registered accounts for purposes of calculating their capital gain or loss for tax purposes of the Fund Units exchanged for ENF common shares under the Exchange. It is not necessary to track the ACB for Fund Units held in registered accounts as gains or losses on such Fund Units are not reported for income tax purposes.

Does ENF have my ACB?

ENF does not have the information required to determine a Unitholder's ACB for his or her Fund Units as each person’s situation is unique. For example, ENF is not privy to the price paid for any Fund Units acquired on the open market nor does it know the length of time that a Unitholder has held his or her Fund Units for purposes of determining the impact of any distributions on the ACB.

Were Units received from a Distribution Reinvestment Investment Plan ("DRIP") to be taken into account in determining the ACB?

Any Fund Units acquired from a DRIP that were held in a non-registered account must have been included in the total number of Fund Units disposed of for income tax purposes. The ACB of Fund Units received from the DRIP is the amount of the distribution which a Unitholder received in the form of Fund Units and must be calculated from the date such Fund Units were received.

Tax Election To Defer A Gain

Was it possible to defer the gain, if any, to a later date?

Yes, a Resident Holder that was an eligible Unitholder may have been able to make a joint election (the "Tax Election") with ENF pursuant to subsection 85(1) of the Tax Act (or in the case of a Unitholder that is a partnership, pursuant to subsection 85(2) of the Tax Act) and thereby obtain a full or partial tax-deferred “rollover” for purposes of the Tax Act in respect of the Exchange. The extent of such rollover will depend on the amount specified in the Tax Election (the "Elected Amount") and the ACB to the eligible Unitholder of such Fund Units immediately before the Effective Time. Provided that the Elected Amount equaled the aggregate ACB to the Eligible Unitholder of the Fund Units in respect of which a Tax Election was made, the exchange of such Fund Units for ENF common shares occurred on a fully tax-deferred basis.

Who was eligible to make the Tax Election?

An “eligible Unitholder” was a beneficial holder of Fund Units that was not a non-resident Unitholder or a tax-exempt Unitholder immediately before the Effective Time. Generally, residents of Canada who pay Canadian income taxes were eligible to make the Tax Election.

Unitholders who elected to defer a gain should consult their own tax advisors for assistance in understanding the Tax Election.

What was the deadline for filing the Tax Election?

As this was a joint election, ENF did not execute or file Tax Elections that were received by ENF after February 28, 2011.

It was the sole responsibility of the eligible Unitholder who wished to take advantage of the tax deferral provided for by section 85 of the Tax Act (and any corresponding provincial or territorial legislation) to attend to the proper completion of the Tax Election forms required under the Tax Act (and any corresponding provincial or territorial legislation). ENF or any nominee thereof was not responsible for the accuracy of the ACB and/or the number of Fund Units reported on a Tax Election form. ENF or any nominee thereof will not be responsible or liable for any taxes, interest, penalties, damages or expenses resulting from the failure by a Unitholder to properly complete any form of Tax Election.